Non-cash Donations & Sales. Accounting and IRS Reporting

Transcription

1 Non-cash Donations & Sales Accounting and IRS Reporting

2 Contact Information Julie L. Sokolowski, CPA Shareholder Wall, Einhorn & Chernitzer, PC CPAs & Advisors 555 East Main Street, Suite 1600 Norfolk, Virginia Phone: TRUST. TALENT. TEAMWORK.

3 Outline Raffles Vehicle Donations Donated Items for Auctions & Other Fundraising events Donated Securities

4 Objectives Be aware of IRS substantiation requirements for contributions of certain non-cash items and subsequent sales of these items Understand GAAP accounting and reporting for select types of non-cash contributions Understand IRS raffle reporting

5 RAFFLES

6 Raffles Why do charities hold Raffles? To raise significant amount of money for the organization Most people can afford a raffle ticket - easier to sell They re fun and generate excitement! Attraction for people to attend an event Get people involved in supporting the charity General awareness of the charity

7 Raffles Is a charity really doing a raffle? Key point were raffle tickets sold separately from event admission tickets. If yes, it s a raffle. ( Duck Races are also considered to be raffles.) If everyone attending is eligible to win from the drawing, then it s a door prize, not a raffle.

8 Raffles Raffle are considered Gaming. Does a charity need to register with the state? Virginia registration required if the charity expects to receive more than $40,000 of gross receipts (before deduction of expenses, including prizes) in any 12 month period. Other states have similar requirements, but check state rules.

9 Raffles What tax effect does a raffle have on a charity? Raffle income is not related to the charities exempt function so is subject to UBIT rules (Unrelated Business Income Tax). 3 Requirements for UBIT 1. Trade or business (Raffles qualify) 2. Regularly carried on 3. Activity not part of exempt purpose (Use of winnings does not matter)

10 Raffles What tax effect does a raffle have on a charity? UBIT Exception if the activity is conducted with substantially all volunteer labor. Unofficial guideline is that substantially all means 85% of the effort was conducted by volunteers that did not receive substantial benefit while volunteering. (Keep time records)

11 Raffles What are other IRS requirements the Charity must follow? Surprise! Raffle tickets are not deductable as a charitable contribution to a person buying a ticket as it is considered gaming. Charity should not provide an acknowledgements and may want to include a statement on the ticket that it is not tax deductable.

12 Raffles What are the IRS requirements the Charity must follow in regard to Prize Donors? Normal non-cash donation acknowledgement requirements Name of the Charity and the donor Description of item but No Value Date of gift Statement that no goods or services provided in return for gift, or, a good faith estimate value of any good/services provided in return for the gift ***

13 Raffles Good faith estimate value of any good/services provided in return for the gift exception: Token Exception lesser of 2% of payment or $105* Low-Cost Article Exception payment at least $52.50 and logo items provided cost $10.50 or less* *(2015 guideline amounts)

14 Raffles What are the IRS requirements the Charity must follow in regard to Prize winners? 1. Determine if W2-G required: If the prize is worth more than $600, and more than 300 times the ticket price, the charity must report the winnings to the IRS using a W2-G and give the winner a copy. Winner must furnish the charity a Form 5754, Statement by Person(s) Receiving Gambling Winnings stating his/her identity and any others entitled to winnings (and their share of the winnings). Charity uses this form to prepare the W2-G.

15 Raffles What are the IRS requirements the Charity must follow? 2) Determine if charity needs to withhold federal income tax If the prize is worth more than $5,000, and more than 300 times the ticket price, withhold and deposit federal income tax on the winnings at a 28% rate. Charity uses Form 945, Annual Return of Withheld Federal Income Tax to file the withholding. Penalties for failure to withhold.

16 Raffles Reporting and withholding example: Charity raffles a car. Raffle tickets are $50 and the car is worth $25,000. As the prize is worth over $600 and more than $15,000 ($50 x 300), the charity is required to issue and file a W2-G. As the prize is worth over $5,000 and more than $15,000 ($50 x 300), the charity is required withhold and deposit $7,000 ($25,000 x 28%) of federal income tax. So how do you withhold on a car?

17 Raffles Reporting and withholding example: So how do you withhold on a car? Options: 1) Winner pays $7,000 before they get the car 2) Gross up the prize to $34,722 ($25,000/ ) and charity pays in federal tax of $9,722 ($34,722 - $25,000). 3) Offer the winner the choice of taking the cash equivalent of the prize which would allow the winner to pay tax of $7,000 and take the remaining cash of $18,000.

18 Raffles Form 990 requirements: Schedule G required if more than $15,000 of gross receipts from gaming. Revenue, expenses, % volunteer labor, state licenses, member vs. non-member income, gaming managers, third party contracts disclosed.

19 Raffles Recording donated raffle activities in accounting records of the charity: 1) Record items donated to be raffled as normal noncash contributions and an asset at FMV 2) Record cash from raffle ticket sales as raffle income 3) Record disposal of assets as raffle expense.

20 Questions of Raffles? Raffles

21 VEHICLE DONATIONS

22 Vehicle Donations IRS allows Vehicle donations for 501(c)(3) charities No adverse affect on tax-exempt status if the charity: Sells vehicle (with or without improvements) and uses proceeds for charitable programs Regularly uses vehicle for charitable programs Distributes vehicle below FMV to needy individuals in direct furtherance of its charitable purpose

23 Vehicle Donations Donor values vehicle over $250 but not more than $500 Charity must provide written acknowledgement. Acknowledgment must include: Name of the Charity and the donor Description of vehicle but No Value Date of contribution Statement that no goods or services provided in return for vehicle, or, a good faith estimate value of any good/services provided

24 Vehicle Donations Donor values vehicle over $250 but not more than $500 If charity uses Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, only provide Copy C to the donor and check the box that states that the donor may not claim a deduction of more than $500. Do not file Copy A with IRS.

25 Vehicle Donations If Donor values vehicle over $500 Charity must provide written acknowledgement, such as Form1098-C, Contributions of Motor Vehicles, Boats, and Airplanes. Acknowledgment must include: Charity s and Donor s name and Donor s Tax id number Vehicle ID number (VIN) Date of contribution Statement that no goods or services provided in return for the vehicle, or, a good faith estimate of good/services provided in return for the vehicle A description of what the NFP intends to do with the vehicle.

26 Vehicle Donations Charity Sells the Vehicle for over $500: Written acknowledgment must also include: A statement certifying that the vehicle was sold in an arm s length transaction between unrelated parties Date vehicle was sold Gross proceeds from sale Statement that the donor s deduction may not exceed the gross proceeds from the sale

27 Vehicle Donations Charity intends a significant intervening use of the vehicle: (Uses the vehicle to substantially further its regularly conducted activities and use must be considerable.) Written acknowledgment must also include: A statement certifying that the Charity intends to make a significant intervening use of the vehicle A detailed statement of the intended use A detailed statement of the duration of that use A certification that the vehicle will not be sold before completion of the intended use

28 Vehicle Donations Charity intends to make a material improvements: (A major repair or improvement that results in a significant increase in value of the vehicle; not minor repairs or maintenance) Written acknowledgment must also include: A statement that the charity intends to make a material improvement to the donated vehicle A certification that the vehicle will not be sold before completion of the improvement

29 Vehicle Donations Charity intends to give or sell the vehicle to a needy individual: Written acknowledgment must also include: A statement that the charity intends to give or sell the vehicle to a needy individual at a price significantly below FMV, and that the gift or sale is in direct furtherance of the charity s charitable purpose

30 Vehicle Donations Reporting due dates if Donor values vehicle over $500 If charity sell the vehicle: written acknowledgment due within 30 days from the date of the sale If charity does not sell (or sells to needy individual): written acknowledgment is due 30 days from the date of the contribution Form 1098-C is due to the IRS by February 28 th (March 31 st if filing electronically) of the year following the year in which the charity provides the acknowledgment to the donor.

31 Vehicle Donations A Donor must file Form 8283, Noncash Charitable Contribution, if deductions for ALL noncash gifts during the year exceed $500. If the contribution deduction is over $5,000, the donor must complete Section B of Form 8283, and an authorized official of the charity must complete a portion of the form and sign it. The donor is required to give the charity a copy of Section B.

32 Vehicle Donations A charity required to sign Form 8283 for receipt of a vehicle must file Form 8282, Donee Information Return, if it sells or disposes of the vehicle within 3 years after the date the vehicle was received. This form is due within 125 days after disposal of the vehicle and a copy must be given to the donor.

33 Vehicle Donations EXCEPTION: Donated Vehicles to be used for Raffle Prizes None of the disposition methods apply so cannot use Form 1098-C. Report Acknowledge like regular non-cash items with No Value and note that the vehicle is to be used as a raffle prize. Car dealerships must treat as donation of inventory and only deduct lower of cost or market.

34 Vehicle Donations Recording the vehicle in the charities accounting records: At time of receipt of vehicle: Charity should record a contribution and an asset at the FMV of the donated vehicle. Consider Blue Book value.

35 Vehicle Donations Recording the vehicle in the charities accounting records: At disposition of vehicle: If sold: record a gain or loss at the difference between the proceeds from sale and the FMV at time of donation If improved then sold: Increase asset value for improvements then record a gain/loss at the difference between the proceeds from sale of the vehicle and the increased value If used: Depreciate then record normal gain/loss on asset at time of disposition If distributed to needy individual: Remove asset and record as program expense (net of any proceeds)

36 Vehicle Donations Questions on Vehicle Donations?

37 DONATED ITEMS FOR AUCTIONS AND EVENTS

38 Donated Auction Items Charities may receive items from donors that are to be used for fund-raising purposes by transferring these items to other donors for money. Examples include: Tickets to entertainment events Gift certificates Works of art Other merchandise

39 Donated Auction Items IRS requirements if donor values item over $250 - Charity should provide written acknowledgement. Acknowledgment to donor must include: Name of the Charity and the donor Description of donated item but No Value Date of contribution Statement that no goods or services provided in return for donated items, or, a good faith estimate value of any good/services provided in return for the donated items

40 Donated Auction Items Acknowledgment to winning bidder must include: Name of the Charity and the donor Description of item and its FMV Amount paid for item Date of payment Statement that charitable deduction is limited to amount paid in excess of FMV of item

41 Donated Auction Items Recommendations to Charity: Report FMV on any auction items listing Report FMV on silent auction bidding sheet Statement that charitable deduction limited to amount paid in excess of FMV of item on brochures, listings and bidding sheets

42 Donated Auction Items Recording donated items in accounting records: Items are considered Gifts in Kind Record as an asset and a contribution at FMV when originally received from the donor Difference between the amount received for those items from events from the FMV when originally recognized should be an adjustment to contribution income either up or down.

43 Donated Auction Items Recording donated items in accounting records: Example of recording Gifts in Kind. Charity receives a concert ticket with an original FMV of $65 from a donor. Charity records a contribution of $65 and an asset of $65.

44 Donated Auction Items Recording donated items in accounting records: Example of recording Gifts in Kind. Charity receives $100 for the concert ticket during a silent auction. Charity records a cash of $100 (debit) and contribution of $35 (credit) and a reduction of the asset of $65 (credit). *Purchaser gets a $35 contribution deduction

45 Donated Auction Items Recording donated items in accounting records: Example of recording Gifts in Kind. Charity receives $50 for the concert ticket during a silent auction. Charity records a cash of $50 (debit) and contribution reduction of $15 (debit) and a reduction of the asset of $65 (credit). *Purchaser gets no contributions deduction as they paid less than FMV

46 DONATED PUBLICLY TRADED SECURITIES

47 Donated Securities Benefits of stock donations: Incentive to Donor as they may get deduction at FMV (rather than cost) on Long-Term Capital Gain property Donors may be more inclined to give multi-year pledges if they can use stock to satisfy pledge Not necessary to have a qualified appraisal gifts of publicly traded securities totaling over $5,000 (required for most other non-cash gifts)

48 Donated Securities Normal non-cash IRS acknowledgment requirements for stock donations which include the following: Name of charity Description of non-cash donation Statement that no goods or services were provided by the charity in return for the contribution, or, a description and good faith estimate of the value of good or services provided in return for the contribution

49 Donated Securities Recording of donation of publicly traded securities in accounting records: Charity should record a contribution and an asset at the fair value of the securities on the date received, or pledged if a charity receives verifiable documentation of specific committed securities. If recorded when pledged any difference of the value at time of the pledge vs. when subsequently received is either an additional contribution or a reduction to contribution income.

50 Donated Securities Recording of donation of publicly traded securities in accounting records: Charity should calculate fair value as an average of high and low share prices at the date received or pledged.

51 Donated Securities Recording the sale of donated securities in accounting records: The difference between the proceeds received from the sale of the securities and the fair value on the date the donated securities were received should be recognized as a realized gain or loss. The cost to sell the securities should also be separately recognized as investment fees expense.

52 Donated Securities Recording donated securities in accounting records: Practical consideration: Many nonprofits have a policy of immediately selling securities when received and often record a contribution in the amount of the proceeds received from sale. This may not be technically correct but it may result in a very immaterial difference in valuation and recording in the accounting records.

53 Donated Securities Recording donated securities in accounting records: ASU No , Statement of Cash Flows (Topic 230): Not- For-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows: Clarifies how to classify donated financial assets on the statement of cash flows. Effective years ending after June 15,

54 Donated Securities Recording donated securities in accounting records: Statement of Cash Flows Decision Tree for Cash Receipts From the Sale of Donated Financial Assets 1. Was the donated financial asset converted nearly immediately to cash? No Present as: Investing Cash inflow Yes See question 2.

55 Donated Securities Recording donated securities in accounting records: Statement of Cash Flows Decision Tree for Cash Receipts From the Sale of Donated Financial Assets 2. Are the proceeds donor-restricted for long-term use? No Present as: Operating Cash inflow Yes Present as: Financing Cash inflow

56 Non-cash Donations & Sales Questions?

57 Summary of Experience Julie Sokolowski joined Wall, Einhorn & Chernitzer, P.C. in She has been practicing in the field of auditing and accounting since Her areas of expertise include audit and accounting, compliance, financial statement analysis, cash flow and financing, and business consulting. Julie works with clients in a variety of industries including notfor-profit, government contracting, distribution, real estate and small businesses. Julie is the leader of the firm's Not-for-Profit Services Team and has complied with continuing education requirements in accordance with Government Auditing Standards. Julie has spoken on educational topics specific to not-for-profit entities for the Tidewater Chapter of the Virginia Society of CPAs and for VOLUNTEER Hampton Roads. Julie L. Sokolowski, CPA Shareholder O: F: jsokolowski@wec-cpa.com Education Elmira College B.S. in Accounting and Business Administration with specialization in Management Professional Certifications CPA Licensed to practice in Virginia Professional Affiliations o American Institute of Certified Public Accountants o Virginia Society of Certified Public Accountants o Tidewater Chapter of the Virginia Society of Certified Public Accountants o Retail Alliance o Women in Defense Community Involvement o Virginia Federation of Humane Societies, Treasurer o Old Dominion University s Accounting Department Advisory Council Member o United Way, Young Leader s Society o Animal Rescue of Tidewater, Member and Accountant Awards o Multi-year recipient of Virginia Business magazine s Super CPA award in the areas of Government and Not-For-Profit